Executive Interview: Michael Strauss on controlling inventory, distribution and sales
First published on 4th October, 2016
How can airlines bring about change – being in control of their IT, offers they make, content they show, distribution etc.? Is the current landscape that features tightly integrated processes too rigid to crack easily? Ai’s Ritesh Gupta spoke to PASS Consulting’s Strauss about the same.
Airlines are keenly looking at emerging options, be it for their IT infrastructure or indirect distribution. Two aspects clearly stand out as of today – the pace of change and the quest of being in control. As witnessed, there are new arrangements that are emerging. For instance, Siemens, together with Lufthansa, started using a bespoke Direct Connect Solution for Lufthansa Group in August. The new arrangement uses Amadeus Altea and Amadeus- owned Cytric OBT, with GDS being bypassed.
Considering that Amadeus and Sabre are deeply entrenched in this space, what can one expect in the future?
In order to know more, Ai’s Ritesh Gupta interacted with Michael Strauss CEO PASS Consulting and Head of PASS Business Unit Travel. Excerpts:
Ai: Where do airlines, cumulatively as an industry, stand today in their quest of being in control of their inventory, distribution and sales?
Michael Strauss: Nowhere! With the exception of a few airlines, most of them are at the mercy of their PSS or CRS provider. With a couple of mergers (American Airlines or AA and US Airways or Continental and United Airlines) we have seen what an undertaking it is to change the inventory provider (or even merge them) – a multi-year project costing a fortune. So inventory management systems are definitely in the driver seat.
Airlines are smart if they at least put sales and distribution in other baskets – which most of them do with their own website or direct connects with large sales organizations (e.g. Priceline) or corporations (Siemens). But considering dependencies, we were able to witness how hard it is to change the landscape: AA in my eyes totally failed with their initiative a few years ago and only a few island solutions remain, and Lufthansa’s success remains to be seen - and it was only possible for them to get this far due to their domestic power. In sales sector business is underestimated – the TMCs maybe do not issue the majority of tickets, but bring in the most revenue. And this is a tightly integrated sector where things collapse if you try to change a screw. I believe TMCs have put too many eggs in GDS baskets and with the constellation that most inventory management systems are owned by GDSs this makes for a dangerous combination: GDSs control the whole value creation chain (image below) not just with their own sales organizations, but also with their influence on TMCs.
So all this friction makes sense to break some rules, but to use a hammer like Lufthansa did might not work for everybody.
Ai: Talking of direct connect strategy, how successful airlines are in their endeavour of being in control and also offering corporate travellers a service tailored to their individual needs?
Michael Strauss: It is lacking, there are so many tightly integrated processes that I’m not surprised. I still believe the strategy is not to change it all, but rather to make organizations think that they need to reinvent themselves. Technology may certainly help with providing individual needs, but even for us at PASS - we have all GDS integrations and a Lufthansa integration - it wouldn’t make sense to do the same for 480 airlines. So while technology can enable certain disruption to make people think it cannot change the whole landscape and all these players are in there for a reason – it is just that too many players are trying to prevent the status quo and block innovation. But as long as the majority of all the inventory is controlled by Amadeus Altea or SabreSonic there will only be change to a certain degree. It would have been interesting if Google used ITA’s res initiative to provide an alternative res system – but then you would put yourself into Google’s hands which isn’t much better. Different story when it was still ITA software.
Ai: It is pointed out that ancillary or bundled products are not readily available when shopping through most travel agencies or corporate booking tools – creating an unnecessary discrepancy and lost opportunity for the airline. What do you make of the situation?
Michael Strauss: Personally I’m annoyed by this topic – and also considering it a ‘lost opportunity’ which I believe means lost revenue – there is not lost revenue. People are ready to pay an amount for their trip and if it is too much and there is no alternative they don’t go. What changed? Checked bags cost extra – in the past it was included. It was considered unbundling, but if it was unbundling, the ticket price should have dropped and since so many travellers started to pack lighter and don’t check bags the airlines should have actually lost revenue – but they didn’t. So checked bags is nothing else than a hidden price increase. And so is seat assignment, etc.
But this is just beside the fact. What I’m really annoyed at is that we are keeping ourselves so busy with technology and discussion on which channel gets what and so on, and no one looks at the user experience at all. The shopping and booking process is more complicated than it ever was. No matter where I book I always get a price which isn’t tailored for me - no system gets smarter with my preferences and search habits. I cannot really shop with my preferences. Don’t even bother showing me results on a middle seat, a connection at an airport which I don’t like, an angled business class seat, fares with outrageous rebooking fees, codeshare flights which don’t even allow me to book a seat, fares which do not satisfy my mileage expectation, etc. - all we can search today is basic price and/or schedule - and this is just made more complicated for the user as now he has to pay extra for a seat, for luggage, etc. on one airline which he doesn’t due to his status, policy or other things on another one – this is not even possible within the alliances. There is so much more we could do if we all just stopped the fighting and start innovating. As per my chatbot blog: I want a fair offer at a fair price for what I need including my preferences and this shouldn’t come in 20 steps, it should be right at your fingertips. (In his post on chatbot, Strauss refers to utility of a chatbot. One could possibly request for a change in a travel plan, and how right from knowing the PNR to details of the whole itinerary, chatbots could possibly help with not only mundane work but also proactive decision-making say intelligence related to destination you are going to).
Ai: Airlines need to work on a standardized API that would be consumed by all channels – web site, kiosk, GDSs, mobile, etc. Even as airlines are trying to be in control of distribution, even IATA points out that API XML connectivity of certain airlines is being done in a proprietary way. Where do airlines need to improve to ensure all stakeholders in the travel distribution chain benefit as well?
Michael Strauss: Indeed the problem is one standard. We have gone through this in the year 2000 when we were part of the Open Travel Alliance and were in the process of developing a Multi-GDS interface. The problem with standardization organizations is that there are numerous interests which end up in endless discussion without any result. In 2000, we had deadlines and needed to deliver. We couldn’t wait any longer until everybody was in agreement that why we just developed our own schema back then and left OTA aside. Later our schema somehow became the standard – at least for air. A decade later our schema was introduced by IATA as NDC. But now the same problem happens again: everybody wants to add his own preference and all of a sudden an air shopping message becomes so huge, that it cannot be easily handled anymore. Thus developer refrain from using it.
In order to become successful as an industry compromises are important – even if it means that not all of your preferences are reflected. You also need to be fast if a demand for a certain feature is there to get it standardized. On the other hand something which was developed need to remain stable and unchanged for a good while. We haven’t changed our schema in 5 years until recently when we introduced ancillary and our clients love us for that because they don’t have to change anything on their end all the time. Of course, we have still made progress and introduced new optional fields/ features but nothing that required change for our regular clients. In less time IATA introduced NDC and overhauled it completely several times. This makes it very complicated for people to trust that their investment is safe and has future if you constantly have to change and adapt.
Some airlines can’t wait or don’t want to wait and they move ahead. It is hard enough for them to get their internal folks behind an idea, so they just skip the idea of a combined industry approach. It is not the best, but it is the nature of standardization. Mobile GSM probably was one of the single most successful standards ever created by mankind, but it was very late adapted in the US. So there is not ideal solution here, bottom line is you need to work with what is out there and see if a compromise is possible. Once a standard or pseudo-standard has been established, you need to remain it constant for a significant amount of time (target 5 years). We are not in consumer electronics here, we are talking about big, heavy systems that need adjustments. Not to forget ever rising security demands which add another dimension of complexity.
Ai: In the context of recent developments such as Siemens and Volkswagen now deciding to book flights directly via LHG airlines’ platform, how the distribution status quo is being challenged?
Michael Strauss: It is not for everybody and it appears it wasn’t easy and took over a year to complete. It was politically strange that Amadeus Cytric bypasses Amadeus GDS to hook into Amadeus Altea. TMC involvement (created booking can be accessed by the TMC) turned out to be a huge challenge – so yes, there is some flexibility there, but in the long run I still believe at some point GDSs will catch up with more flexibility, new heads will revoke existing decisions and enter into new contracts and we will be back to the old environment just with a little more airline flexibility.
Ai: How are TMCs getting affected with the decision to look beyond GDS distribution?
Michael Strauss: TMCs definitely have their values and are much needed but with their dedication to GDS mainly due to the overwrites coming in from GDSs this is dangerous game that if airlines decide to bypass the chain as they are unable to change the rules with any of the player, TMCs might be degraded to value added services (Security, complicated bookings, remote areas, etc.) but much less the brick and mortar stuff which in the past have paid the bills. See next question about that TMCs need to reinvent themselves.
Ai: Going forward, how do you expect initiatives from airlines to change the world of corporate travel management?
Michael Strauss: I don’t see huge change, eventually all will stay the same – once the airlines are happy to have a little more influence to distribution and be able to position their product correctly. There will probably be some island direct connects but only in isolated areas - such as domestic Germany between huge players there. Even in Germany the prosperity of Germany is not built on Siemens, Lufthansa or Volkswagen, it is SME and no solution is anywhere near for SME. It is also interesting to note that LH only transports 4% passengers of compared to Deutsche Bahn. It is a good threat the airlines have against the oligopoly of the GDSs and for that reason they will keep this initiative alive, but in the end there will be arrangements.
Way more interesting to me is what TMCs will do, because they should really reinvent themselves and be more than just a call center using technology from everybody else. Otherwise I can see a shift that corporations will bring the technology and expertise inhouse and drastically reduce their agents. I see this happening with one of our financial clients. Don’t forget that soon there will be pretty smart AI agents.
Where is industry headed with developments such as NDC? Hear from senior industry executives at the upcoming 7th Mega Event Worldwide 2016, The Event for Loyalty, Ancillary & Merchandising & Co-Brands, to be held in Toronto, Canada. (25 -26 October, 2016).
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